Advisory panel recommends Medicare payment cuts

The report also calls for cutting payments to nursing homes, particularly those with high rehospitalization rates, while shifting payment from facilities that concentrate on intensive therapy to facilities that treat medically complex patients.

Finally, MedPAC recommends tweaking the low-income subsidy for Medicare's prescription drug program to encourage the use of generic drugs.

"Plans often use cost-sharing differentials to motivate beneficiaries to use generic drugs," the report explains. "However, since cost sharing for [low-income subsidy] enrollees is set by law rather than by each plan, sponsors have limited ability to manage drug spending for this population.

"By revising the … copayment structure, Medicare may be able to reduce program spending without substantially affecting access to needed medications. The policy would take into account the limited income of this population and retain the existing exceptions and appeals process."